Another Bailout

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.

October 1, 2013 - 20:22 — CAGW Staff

While the focus of the press and Washington has been on passing a continuing resolution and a government shutdown, the White House pulled the usual Washington D.C. public affairs stunt when you don’t wont bad or controversial news to be discussed broadly. It releases the news on a Friday afternoon.

According to several news reports, last Friday the White House sent HUD Secretary Shaun Donovan, Transportation Secretary Anthony Foxx, Attorney General Eric Holder, and White House Economic Council director Gene Sperling to the bankrupt city of Detroit and announce a $320 million “financial aid” package, better known as taxpayer-funded bailout. Said Sperling, “[t]his effort is about lifting up Detroit, and committing to a shared, long-term investment that will enable the businesses and residents in Detroit to expand opportunity and renew this world-class city."

The Wall Street Journal said the funds were, “cobbled together from programs including TARP and the Federal Emergency Management Agency” and “are supposedly intended to encourage private investment. The aid includes $150 million to remove blight and spur redevelopment; $30 million for public safety and to hire 150 firefighters; and $140 million to improve transportation.”

But the Wall Street Journal also points out that several private foundations, private firms, and partnerships have already given Detroit more than $70 million to rebuild the city and are donating items such as police cars or ambulances.

But federal aid always comes with conditions and more than likely that will include requiring the city to pay union wages that will increase prices. The Journal says:

Mr. Orr's bankruptcy plan includes re-investing $1.25 billion in city services over 10 years by reducing debt service and pension costs. About $50 million in debt savings this year are earmarked for blight removal. These plans are crucial to getting the city back on a sustainable path that matches revenue. But with the arrival of federal aid, the unions will argue the city no longer needs to cut pensions. That may have even been part of the White House calculation.

Based on a Wall Street Journal op-ed written in July by former chief operating officer Bill Nojay, it is clear the collapse of Detroit can be laid at the feet of the unions, incompetent city management, and corrupt politicians. He speaks of a bureaucratic morass and byzantine rules, where even a simple fix to a problem could not be achieved.

For example, Nojay wanted to address a perpetual concern of hundreds of costly bus-accident claims and tried to get the city’s law department to determine which were fraudulent and settled at an unnecessary high cost. But the law department’s policy was to settle all claims sending a loud signal to trial lawyers to file suit. When he tried to hire his own lawyers to fight the claims, his office was told “the union representing the law department—in Detroit, even the lawyers are unionized—would block any such approval.”

Of course, when government candy starts to be dispersed, others want the sugar fix too. The Journal notes that, “Congressman Jerry McNerney (D-Calif.) sent the White House a letter on Friday asking why ‘comparable assistance’ was not offered to the San Joaquin Valley city of Stockton, which declared bankruptcy in 2012 and suffers from many of the same problems as Detroit. ‘This is not a time for favoritism,’ he wrote.”

So the gate has been open for other politicians that have ran their cities into the ground such as Stockton, Calif; San Bernardino, Calif.; or Central Falls, R.I. to beg for taxpayer money to bail them out. These bailouts need to be stopped. Not doing so simply encourages continued bad behavior.